RBI releases guidelines for P2P lenders; caps loans exposure at Rs 10 lakh per borrower

Peer to peer (P2P) lenders can cumulatively lend a maximum of Rs 10 lakh and individually have an exposure to a borrower of not more than Rs 50,000, as per the guidelines released by the Reserve Bank of India (RBI).

"The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh and the aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh and the exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000," RBI said in a master directions released on Wednesday evening.

Two weeks ago, the government had approved the RBI to regulate P2P lenders as non-banking finance companies (NBFCs).

P2P lending is a crowd-funding model (largely online) where people looking to invest their money with people who want to borrow can do so. The concept is centered around savers getting higher interest by lending their money instead of saving, and borrowers get comparatively lower interest rates.

The P2P lenders would be allowed to lend only unsecured loans i.e. will not be allowed to take collateral against the loans they lend.

“The maturity of the loans shall not exceed 36 months. P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to,” the circular said.

Bhavin Patel, Co-Founder and Chief Executive Officer of LenDenClub, “I would say 90 percent the directions come from the consultation paper. We will be given NBFC designation and like them we can submit our historical data which will help borrowers. RBI has even asked us specifically on how to maintain the payment structure and we will be required to do quarterly reporting. The cap of Rs 10 lakh is something we would have liked to be higher for the lender at about Rs 25 lakh or Rs 50 lakh but we understand RBI’s concerns. But this may be an entry barrier for new players to come on this platform. We hope as this industry grows, they may increase it later.”

Prudential Norms

(1) NBFC-P2P shall maintain a Leverage Ratio not exceeding 2.

(2) The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10,00,000/-.

(3) The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of Rs 10,00,000.

(4) The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000.

(5) The maturity of the loans shall not exceed 36 months.

(6) P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the limits prescribed above are being adhered to.

An NBFC-P2P will be expected to:

(i) Undertake due diligence on the participants

(ii) Undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders

(iii) Undertake documentation of loan agreements and other related documents

(iv) Provide assistance in disbursement and repayments of loan amount

(v) Render services for recovery of loans originated on the platform.

Scope of Activities

An NBFC-P2P shall-

(i) act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;

(ii) not raise deposits

(iii) not lend on its own;

(iv) not provide or arrange any credit enhancement or credit guarantee;

(v) not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted;

(vi) not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds as stipulated in paragraph 9

(vii) not cross sell any product except for loan specific insurance products;

(viii) not permit international flow of funds;

The RBI had floated a consultation paper in April 2016.

In the final guidelines master directions, RBI said, "An NBFC-P2P shall act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending, not raise deposits not lend on its own, not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted and not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans.”

The NBFC-P2P lenders will also not be able to cross sell any product except for loan specific insurance products and can store and process all data relating to its activities and participants on hardware located within India.

Fund transfer Mechanism

Fund transfer between the participants on the P2P Lending Platform shall be through escrow account mechanisms which will be operated by a trustee. “At least two escrow accounts, one for funds received from lenders and pending disbursal, and the other for collections from borrowers, shall be maintained. The trustee shall mandatorily be promoted by the bank maintaining the escrow accounts. All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited,”

Existing NBFC-P2Ps shall apply within three months from the issuance of the new directions.